Dispatches from a Small Business

Perversity of Government-Selected Winners

Technocrats love to pick winners. Leftish technocrats, in particular, love to believe that the complex operations of the entire economy choose technologies that are inferior to those the technocrat would have imposed on the economy had she been in charge. But here is what happens when they try, in a cautionary tail that is particularly relevant given the number of specific technologies Barrack Obama has said he would promote (e.g. a million plug-in hybrids by 2015) (via Tom Nelson)

The federal government has invested billions of dollars over the past
16 years, building a fleet of 112,000 alternative-fuel vehicles to
serve as a model for a national movement away from fossil fuels.

But the costly effort to put more workers into vehicles powered by
ethanol and other fuel alternatives has been fraught with problems,
many of them caused by buying vehicles before fuel stations were in
place to support them, a Washington Post analysis of federal records shows.

"I call it the 'Field of Dreams' plan. If you buy them, they will come," said Wayne Corey, vehicle operations manager with the U.S. Postal Service. "It hasn't happened."

Under a mandate from Congress, federal agencies have gradually
increased their fleets of alternative-fuel vehicles, a majority of them
"flex-fuel," capable of running on either gasoline or ethanol-based E85
fuel. But many of the vehicles were sent to locations hundreds of miles
from any alternative fueling sites, the analysis shows.

As a result, more than 92 percent of the fuel used in the
government's alternative-fuel fleet continues to be standard gasoline.
A 2005 law -- meant to align the vehicles with alternative-fuel
stations -- now requires agencies to seek waivers when a vehicle is
more than five miles or 15 minutes from an ethanol pump.

The latest generations of alternative vehicles have compounded the
problem. Often, the vehicles come only with larger engines than the
ones they replaced in the fleet. Consequently, the federal program --
known as EPAct -- has sometimes increased gasoline consumption and
emission rates, the opposite of what was intended....

The Postal Service illustrates the problem. It estimates that its 37,000
newer alternative-fuel delivery vans, which can run on high-grade
ethanol, consumed 1.5 million additional gallons of gasoline last
fiscal year because of the larger engines.

The article does not even mention that E85 ethanol made mostly from corn does absolutely nothing to reduce total CO2 production (it just shifts it around, due to the amount of energy required to grow corn and convert it to ethanol) while raising food prices.

California did something like this years ago, putting the force of subsidies and state law behind zero-emission vehicles. This wasted a lot of money on electric and hydrogen vehicles that were not yet technologically mature enough to prosper, while missing out on low (but now zero) emissions approaches that could have had much more impact because they were technologically ready (e.g. CNG for fleet vehicles).

Y'all know where I stand on the dangers of CO2. But if we really have to do "something", then the only efficient way to do it is with a carbon tax. But politicians hate this idea, because they don't want to be associated with a tax. But the fact is, that every other action they are proposing is a tax of some sort too, but just hidden and likely less efficient. There is no magic free lunch that Barrack Obama and his folks can think of and impose, no matter how smart they are. In fact, to some extent, smarts are a hindrance, because it tempts people into the hubris of thinking that they are smart enough to pick winners.

Postscript: If you are reading this and thinking "well, if I were in charge, I would not be that stupid and I could make it work" then you don't get it. 1) No one can make it work, for the same reasons the Soviets could not plan their economy from the top -- its just too complex. At best, policy-makers are choosing between a handful of alternatives to back. In contrast, every individual has a slate of opportunities to reduce his/her CO2 production at the least cost, and when you add up all these individual portfolios, that means there are hundreds of millions of individual opportunities that must get prioritized. That is what pricing signals do, but government bureaucrats cannot. 2) The morons and knaves ALWAYS take over. Even if you are brilliant and well-motivated, your successor likely will not be. For years, folks have generally been comfortable with the outsized role of the Federal Reserve because they thought Greenspan (and Volker before him) ran it brilliantly. Well, there are arguments to be made about this, but even if we accept this judgment, what happens when the next guy is in charge and is not brilliant?

Postscript #2: If you want a specific example, let's take plug-in hybrids. How can anyone be against these? I personally like the concept of cars being driven by electric traction motors (I like the performance profile of them) and would love a good plug-in hybrid. But what happens when we find out that many of these cars were bought in coal-burning areas where electricity is particularly cheap, and discover coal-fired electricity pollutes more than an internal combustion engine? Or when we use a cap and trade system to cut back on coal fired plants, and find that the huge number of plug-in hybrids are exacerbating brown-outs and electricity shortages? Or we find that the billions of dollars of capital diverted by the government to expanding plug-in hybrids could have easily yielded far more CO2 reduciton had it been applied in another area? That is why a carbon tax is the only way to go (if we are going to do anything) because it allows individuals to make capital expenditure decisions to reduce CO2 based on their vastly higher knowlege of the opportunities and the pricing signal of the tax.

Comments

If I were in charge, there's one thing I could make work: I would repeal the CAFE rules, abolish all non-safety mandates* except some air pollution rules,** and let car builders thereafter supply whatever their customers prefer. On the fuel side I would abolish all the States' boutique gasoline rules which drive up fuel prices by segmenting the market into lots of little regional monopolies, I would abolish all "oxygenate" and ethanol mandates,*** and I would force fuel sellers to disclose the actual octane ratings, RVP, and BTU content of their motor fuels. I guarantee everyone would be better off under my regime.

*Although I would leave many equipment (e.g., headlights) and crashworthiness rules in place, I would abolish child-safety-seat mandates for children over one year old.

**I would forbid states to set up any other goofy mandates (especially CO2 emission limits) on the pretense of restricting pollution. I would set some Federal emissions limits for NOx, O3, sulfur compounds, etc. in proportion to fuel consumption, but leaving engine size, gas-mileage, etc. to the market.

***It is settled now that (thanks largely to modern fuel-injection systems) oxygenated gasoline does not reduce CO or any other unwanted emissions, actually increases VOC emissions, and wastes money and time by decreasing gas mileage, corroding cars (oxygenates are hygroscopic), and polluting groundwater.

Posted by: Vercingetorix | Nov 24, 2008 4:28:23 PM

I agree that there are much better ways to reduce CO2 emissions if "we have to". I disagree that a carbon tax is the answer. First and most likely, taxes for government programs typically only are high enough to cover the cost of administrating the program. Why is this a problem? Well my guess is that the tax will still exceed to lowest abatement cost. Meaning that even the cheapest pollution control technologies can end up being more expensive in the long run than paying a tax. On the upside taxes are more effective than traditional approaches and especially much better than marketable permits. Traditionally companies incur the pollution control costs to get just down the the emission standard, adding a tax on that now provides a bit more incentive to find better control technologies since they are paying controls costs plus a tax. I know this a a simple analysis but I think that is what the post was getting at.

Posted by: Geoffrey | Nov 24, 2008 6:41:19 PM

Carbon tax, Cap and Trade ...all nonsensical solutions to a nonexistent problem that will be a boondoggle for the environmentalists and their political allies. Energy costs will rise unnecessarily, and our economy and our lifestyle will be beaten back toward the stone-age.

Carbon dioxide is not a pollutant ...it is a necessity for life on earth. How much CO2 is too much? No one has an answer, but we do know that the computer models being used by scientists to evaluiate this and to keep the government grants coming have been wrong, wrong, and wrong.

Keeping my worldview simple, I believe that man is incapable of destroying the earth and I believe that man cannot stop ongoing climate change even if we wanted to do so. We cannot stop hurricanes, dust storms, drought, rain, hurricanes, blizzards, volcano eruptions and tsunamis ...nor are we attempting to do so. Lets let that hot round ball called Sol continue to warm us as long as it can.

Environmentalists need to get out of my life and leave me alone. I do not want ego-driven fools making decisions based upon junk science that is costing us all trillions of dollars every year.

One final note: Even if there was a problem to fix, government is not the entity to install a solution.

I get E85 from a Kroger's gas station just down the street. It costs a little less than regular gas. I'm using about 50-50 E85/gas in my 1994 Chevy 1500 pickup truck.

As you all probably know, ethanol has about 2/3 the energy per gallon than gasoline. That is quite noticeable on a 50/50 mix. I'm also keen aware that ethanol causes a weak mixture in a non-FFV type fuel system. The oxygen sensor compensates at low throttle settings but not while accelerating hard. That causes high temperatures inside - enough to damage the engine if you're not careful. In spite of that, I'm all for it. Smells nice, too ;-)

You folks who poo-poo alternative fuels, give me call around 2025-2030 and I'll stop by in my bio-diesel powered Jeep.

T.C.

Posted by: xpatUSA | Nov 24, 2008 9:57:10 PM

There's a major fallacy in framing your argument against "technocrats". Basically you're saying that a more expert decision would be to let markets select winnners. You're just substituting one technocrat's decision making authority for another: instead of central planning technocrats, you'd prefer market design and optimization technocrats. And the technocrats at the top of the food chain, administration and regulation decision optimization technocrats would be the ones that pick the market approach over the central planning approach in your example. Do you disagree?

You're going to be typing his name a lot in the next four years, might as well practice spelling it correctly.

Posted by: eddie | Nov 25, 2008 11:46:29 AM

And Barracks Obamalamshamalamadingdong might as well get this right: the tax is the preferable course of action to the bogus cap & trade scheme.

Both suck, but cap & trade is economically, and market-based nonsensical.

Posted by: Mesa Econoguy | Nov 26, 2008 9:56:06 PM

And both will fail.

Forgot to add that. Sorry.

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